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Freeman Inc. purchased a piece of agricultural land several years ago for $125,000. The land has a

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Freeman Inc. purchased a piece of agricultural land several years ago for $125,000. The land has a fair value of $200,000 now. The company plans to exchange this land for equipment owned by a land developer that has a fair value of $240,000. The equipment was originally purchased for $325,000, and $80,000 of depreciation has been recorded to the date of the sale on April 30, 2016.
Required:
1. Assume each party values the acquired asset based on the fair value of the asset given up. Prepare the journal entry on the books of
a. Freeman
b. the developer.
2. Why would the developer give up an asset with a fair value of $240,000 in exchange for an asset with a fair value of only $200,000?
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1 Journal entries to record the sale on the books of a Freeman April 30 20...View the full answer


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Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.

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